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Concor: Hampered by the EXIM business - Views on News from Equitymaster

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Concor: Hampered by the EXIM business

Oct 15, 2009

Performance summary
  • During 2QFY10, topline grows merely by 6.2% YoY. Muted performance of the EXIM business restricts overall growth.
  • Operating profits decline by 6.2% YoY as growth in costs outpace topline growth.
  • On account of poor show at the operating level, lower other income and higher depreciation costs, profit before tax (PBT) and net profits decline by 8.5% YoY and 8.6% respectively.

Financial performance snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 9,042 9,599 6.2% 17,270 18,673 8.1%
Expenditure 6,339 7,065 11.4% 12,174 13,661 12.2%
Operating profit (EBITDA) 2,703 2,534 -6.2% 5,097 5,012 -1.7%
EBITDA margin 29.9% 26.4%   29.5% 26.8%  
Other income 465 439 -5.5% 914 852 -6.7%
Interest - - N.A. - - NA
Depreciation 275 328 19.1% 550 643 17.0%
Profit before tax/(loss) 2,893 2,646 -8.5% 5,461 5,221 -4.4%
Tax 656 602 -8.2% 1,205 1,169 -3.1%
Profit after tax/(loss) 2,237 2,044 -8.6% 4,255 4,052 -4.8%
Net margin 24.7% 21.3%   24.6% 21.7%  
No of shares (m)       130 130  
Diluted EPS (Rs)*         59.3  
P/E (times)         19.4  
*trailing twelve month earnings

What has driven performance in 2QFY10?
  • Container Corporation's (Concor) revenues grew by 6.2% YoY during 2QFY10 largely on the back of double digit growth (16.2% YoY) reported by its domestic business. The EXIM (export-import) business that accounts for 80% of total revenues reported a muted 4% YoY growth. Considering the global economic scenario the single digit growth on the EXIM front is respectable. Going forward too, the company foresees the growth of the EXIM business to hover around the same levels as domestic business continues to report double digit growth on the back of improving domestic trade prospects.

  • The cost of operation grew at a faster rate as compared to topline growth, which led to 6.2% YoY fall in operating profits. Much of the damage was caused by increase in rail freight expenses and higher employee costs. Slowdown in the EXIM business also impacted profitability as the margins of this segment are higher as compared to the domestic business.

    Segmental break-up...
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Exim 7,438 7,735 4.0% 14,082 14,979 6.4%
    PBIT 2,332 2,086 -10.6% 4,312 4,046 -6.2%
    PBIT margins (%) 31.4% 27.0%   30.6% 27.0%  
    Domestic 1,604 1,864 16.2% 3,188 3,694 15.9%
    PBIT 222 239 7.8% 465 546 17.6%
    PBIT margins (%) 13.8% 12.8%   14.6% 14.8%  

  • Profit before tax (PBT) declined by 8.5% YoY on account of dismal show at the operating level, lower other income and higher depreciation charges. The company has not scaled down its capex plans as it expects volumes to improve in the future with a revival in the economy.

  • Concor has outlined capex of nearly Rs 6 bn for the current year. It has been adding 2 rakes every month. Considering the global economic conditions the company has been focusing on its domestic business to sustain growth. Moreover, despite increasing competition in domestic markets with the privatization of rail freight services, Concor being a dominant player with wider network enjoys competitive advantage over new entrants. However it remains to be seen whether it would be able to sustain this advantage in the future. Keeping in mind the increasing competition, Concor has increased focus on capturing new markets, marketing and providing end to end total logistics solution to retain customers and grow the customer base. It has also strategically entered into alliances with few newer entrants to share infrastructure and support revenue growth.

  • Despite lower tax outgo, net profits declined by 8.6% YoY on account of subdued performance at the PBT level.

What to expect?
At the current price of Rs 1,150, the stock is trading at 19.4 times its trailing twelve month earnings. There is huge potential for growth in the company's core business of container transportation and, given its strong competitive advantages, we do not think competition will easily nibble away at the company's market share. Although Concor had witnessed sluggish growth in FY09, the business prospects seem to return to normalcy with expected revival in economic growth. From a long term perspective, considering the sector potential, Concor’s strong balance sheet and its initiatives to capture new markets, we believe that it would be able to take advantage of the growth story that is unfolding in the sector.

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Mar 18, 2019 (Close)


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